Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 28, 2023


☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to ______.

Commission file number: 000-49885

Kirkland’s, Inc.

(Exact name of registrant as specified in its charter)


Tennessee	62-1287151
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

5310 Maryland Way
Brentwood, Tennessee	37027
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 872-4800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	KIRK	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value – 12,923,677 shares outstanding as of November 25, 2023.

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KIRKLAND’S, INC.

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		Page

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) as of October 28, 2023, January 28, 2023 and October 29, 2022	3
	Condensed Consolidated Statements of Operations (Unaudited) for the 13-week and 39-week periods ended October 28, 2023 and October 29, 2022	4
	Condensed Consolidated Statements of Shareholders’ (Deficit) Equity (Unaudited) for the 13-week and 39-week periods ended October 28, 2023 and October 29, 2022	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the 39-week periods ended October 28, 2023 and October 29, 2022	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19

PART II	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	20

SIGNATURES		21

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)


	October 28,			January 28,			October 29,
	2023			2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	5,765		$	5,171		$	11,245
Inventories, net		105,190			84,071			126,315
Prepaid expenses and other current assets		5,863			5,089			7,126
Total current assets		116,818			94,331			144,686
Property and equipment:
Equipment		19,556			19,614			19,929
Furniture and fixtures		65,302			66,906			68,580
Leasehold improvements		101,925			103,525			106,524
Computer software and hardware		83,236			81,685			80,142
Projects in progress		643			743			2,594
Property and equipment, gross		270,662			272,473			277,769
Accumulated depreciation		(239,014	)		(233,797	)		(235,140	)
Property and equipment, net		31,648			38,676			42,629
Operating lease right-of-use assets		130,513			134,525			136,280
Other assets		6,848			6,714			7,979
Total assets	$	285,827		$	274,246		$	331,574
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	55,729		$	43,739		$	47,157
Accrued expenses		23,484			26,069			27,027
Operating lease liabilities		39,966			41,499			40,156
Total current liabilities		119,179			111,307			114,340
Operating lease liabilities		108,248			114,613			119,254
Revolving line of credit		62,000			15,000			60,000
Other liabilities		3,685			3,553			4,915
Total liabilities		293,112			244,473			298,509
Shareholders’ (deficit) equity:
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding at October 28, 2023, January 28, 2023, and October 29, 2022, respectively		—			—			—
Common stock, no par value; 100,000,000 shares authorized; 12,923,677; 12,754,368; and 12,754,368 shares issued and outstanding at October 28, 2023, January 28, 2023, and October 29, 2022, respectively		176,260			175,450			174,949
Accumulated deficit		(183,545	)		(145,677	)		(141,884	)
Total shareholders’ (deficit) equity		(7,285	)		29,773			33,065
Total liabilities and shareholders’ (deficit) equity	$	285,827		$	274,246		$	331,574

The accompanying notes are an integral part of these financial statements.

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KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	13-Week Period Ended						39-Week Period Ended
	October 28,			October 29,			October 28,			October 29,
	2023			2022			2023			2022
Net sales	$	116,365		$	130,962		$	302,744		$	336,348
Cost of sales		85,712			98,275			228,781			256,844
Gross profit		30,653			32,687			73,963			79,504
Operating expenses:
Compensation and benefits		19,841			20,794			59,097			63,193
Other operating expenses		16,104			16,757			44,932			50,549
Depreciation (exclusive of depreciation included in cost of sales)		1,043			1,577			3,471			4,870
Asset impairment		316			219			1,542			447
Total operating expenses		37,304			39,347			109,042			119,059
Operating loss		(6,651	)		(6,660	)		(35,079	)		(39,555	)
Interest expense		1,163			704			2,415			1,226
Other income		(127	)		(80	)		(346	)		(235	)
Loss before income taxes		(7,687	)		(7,284	)		(37,148	)		(40,546	)
Income tax (benefit) expense		(1,290	)		57			720			355
Net loss	$	(6,397	)	$	(7,341	)	$	(37,868	)	$	(40,901	)

Loss per share:
Basic	$	(0.50	)	$	(0.58	)	$	(2.95	)	$	(3.22	)
Diluted	$	(0.50	)	$	(0.58	)	$	(2.95	)	$	(3.22	)
Weighted average shares outstanding:
Basic		12,921			12,754			12,852			12,686
Diluted		12,921			12,754			12,852			12,686

The accompanying notes are an integral part of these financial statements.

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KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY (UNAUDITED)

(in thousands, except share data)


	Common Stock									Total Shareholders’
	Shares			Amount			Accumulated Deficit			(Deficit) Equity
Balance at January 28, 2023		12,754,368		$	175,450		$	(145,677	)	$	29,773
Restricted stock issued		86,824			—			—			—
Net share settlement of restricted stock units		(28,294	)		(76	)		—			(76	)
Stock-based compensation expense		—			490			—			490
Net loss		—			—			(12,107	)		(12,107	)
Balance at April 29, 2023		12,812,898			175,864			(157,784	)		18,080
Restricted stock issued		104,475			—			—			—
Stock-based compensation expense		—			124			—			124
Net loss		—			—			(19,364	)		(19,364	)
Balance at July 29, 2023		12,917,373			175,988			(177,148	)		(1,160	)
Restricted stock issued		8,334			—			—			—
Net share settlement of restricted stock units		(2,030	)		(5	)		—			(5	)
Stock-based compensation expense		—			277			—			277
Net loss		—			—			(6,397	)		(6,397	)
Balance at October 28, 2023		12,923,677		$	176,260		$	(183,545	)	$	(7,285	)


	Common Stock						Accumulated			Total Shareholders’
	Shares			Amount			Deficit			Equity
Balance at January 29, 2022		12,631,347		$	175,856		$	(94,730	)	$	81,126
Exercise of stock options		2,705			16			—			16
Restricted stock issued		797,849			—			—			—
Net share settlement of stock options and restricted stock units		(224,320	)		(2,375	)		—			(2,375	)
Stock-based compensation expense		—			548			—			548
Repurchase and retirement of common stock		(479,966	)		—			(6,253	)		(6,253	)
Net loss		—			—			(7,855	)		(7,855	)
Balance at April 30, 2022		12,727,615			174,045			(108,838	)		65,207
Restricted stock issued		28,574			—			—			—
Net share settlement of restricted stock units		(1,821	)		(8	)		—			(8	)
Stock-based compensation expense		—			617			—			617
Net loss		—			—			(25,705	)		(25,705	)
Balance at July 30, 2022		12,754,368			174,654			(134,543	)		40,111
Stock-based compensation expense		—			295			—			295
Net loss		—			—			(7,341	)		(7,341	)
Balance at October 29, 2022		12,754,368		$	174,949		$	(141,884	)	$	33,065

The accompanying notes are an integral part of these financial statements.

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KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	39-Week Period Ended
	October 28,			October 29,
	2023			2022
Cash flows from operating activities:
Net loss	$	(37,868	)	$	(40,901	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		9,118			12,925
Amortization of debt issue costs		80			69
Asset impairment		1,542			447
(Gain) loss on disposal of property and equipment		(20	)		195
Stock-based compensation expense		891			1,460
Changes in assets and liabilities:
Inventories, net		(21,119	)		(12,286	)
Prepaid expenses and other current assets		(891	)		3,184
Accounts payable		11,885			(14,648	)
Accrued expenses		(2,775	)		(1,873	)
Income taxes payable (refundable)		307			(1,684	)
Operating lease assets and liabilities		(3,933	)		(4,670	)
Other assets and liabilities		97			(427	)
Net cash used in operating activities		(42,686	)		(58,209	)

Cash flows from investing activities:
Proceeds from sale of property and equipment		130			35
Capital expenditures		(3,313	)		(6,964	)
Net cash used in investing activities		(3,183	)		(6,929	)

Cash flows from financing activities:
Borrowings on revolving line of credit		52,000			60,000
Repayments on revolving line of credit		(5,000	)		—
Debt issuance costs		(456	)		—
Cash used in net share settlement of stock options and restricted stock units		(81	)		(2,383	)
Proceeds received from employee stock option exercises		—			16
Repurchase and retirement of common stock		—			(6,253	)
Net cash provided by financing activities		46,463			51,380

Cash and cash equivalents:
Net increase (decrease)		594			(13,758	)
Beginning of the period		5,171			25,003
End of the period	$	5,765		$	11,245

Supplemental schedule of non-cash activities:
Non-cash accruals for purchases of property and equipment	$	804		$	573

The accompanying notes are an integral part of these financial statements.

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KIRKLAND’S, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Description of Business and Basis of Presentation

Nature of Business — Kirkland’s, Inc. (the “Company”, “we”, “our” or “us”) is a specialty retailer of home décor and furnishings in the United States operating 339 stores in 35 states as of October 28, 2023, as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.

Principles of consolidation — The condensed consolidated financial statements of the Company include the accounts of Kirkland’s, Inc. and its wholly-owned subsidiaries, Kirkland’s Stores, Inc., Kirkland’s DC, Inc., and Kirkland’s Texas, LLC. Significant intercompany accounts and transactions have been eliminated.

Basis of presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and pursuant to the reporting and disclosure rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 4, 2023.

Seasonality — The results of the Company’s operations for the 13-week and 39-week periods ended October 28, 2023 are not indicative of the results to be expected for any other interim period or for the entire fiscal year due to seasonality factors.

Fiscal year — The Company’s fiscal year ends on the Saturday closest to January 31, resulting in years of either 52 or 53 weeks. Accordingly, fiscal 2023 represents the 53 weeks ending on February 3, 2024 and fiscal 2022 represents the 52 weeks ended on January 28, 2023.

Use of estimates — The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than those at fiscal year-end.

Changes in estimates are recognized in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include, but are not limited to, impairment assessments on long-lived assets, inventory reserves, self-insurance reserves and deferred tax asset valuation allowances.

Note 2 –Revenue Recognition

Net sales — Net sales includes the sale of merchandise, net of returns, shipping revenue, gift card breakage revenue and revenue earned from our private label credit card program and excludes sales taxes.

Sales returns reserve — The Company reduces net sales and estimates a liability for sales returns based on historical return trends, and the Company believes that its estimate for sales returns is a reasonably accurate reflection of future returns associated with past sales. However, as with any estimate, refund activity may vary from estimated amounts. The Company had a liability of approximately $1.4 million, $1.5 million and $1.6 million reserved for sales returns at October 28, 2023, January 28, 2023 and October 29, 2022, respectively, included in accrued expenses on the condensed consolidated balance sheets. The related sales return reserve products recovery asset included in prepaid expenses and other current assets on the condensed consolidated balance sheets was approximately $609,000, $705,000 and $745,000 at October 28, 2023, January 28, 2023, and October 29, 2022, respectively.

Deferred e-commerce revenue —The Company recognizes revenue at the time of sale of merchandise to customers in its stores. E-commerce revenue is recorded at the estimated time of delivery to the customer. If the Company receives payment before completion of its customer obligations, the revenue is deferred until the customer takes possession of the merchandise and the sale is complete. Deferred revenue related to e-commerce orders that have been shipped but not estimated to be received by customers included in accrued expenses on the condensed consolidated balance sheets was approximately $1.2 million, $0.7 million and $1.2 million at October 28, 2023, January 28, 2023 and October 29, 2022, respectively. The related contract assets, reflected in inventories, net on the condensed

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consolidated balance sheets, totaled approximately $566,000, $359,000 and $616,000 at October 28, 2023, January 28, 2023 and October 29, 2022, respectively.

Gift cards — Gift card sales are recognized as revenue when tendered for payment. While the Company honors all gift cards presented for payment, the Company determines the likelihood of redemption to be remote for certain gift card balances due to long periods of inactivity. The Company uses the redemption recognition method to account for breakage for unused gift card amounts where breakage is recognized as gift cards are redeemed for the purchase of goods based upon a historical breakage rate. In these circumstances, to the extent the Company determines there is no requirement for remitting unredeemed card balances to government agencies under unclaimed property laws, such amounts are recognized in the condensed consolidated statements of operations as a component of net sales.

The table below sets forth selected gift card liability information (in thousands) for the periods indicated:


	October 28, 2023		January 28, 2023		October 29, 2022
Gift card liability, net of estimated breakage (included in accrued expenses)	$	11,448	$	14,077	$	13,658

The table below sets forth selected gift card breakage and redemption information (in thousands) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Gift card breakage revenue (included in net sales)	$	338	$	189	$	1,673	$	582
Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period		1,430		1,673		3,708		4,200

Customer loyalty program — The Company has a loyalty program called the K-club that allows members to receive points based on qualifying purchases that are converted into certificates that may be redeemed on future purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the customer. The related loyalty program deferred revenue included in accrued expenses on the condensed consolidated balance sheets was approximately $1.2 million at October 28, 2023, January 28, 2023 and October 29, 2022.

Note 3 – Income Taxes

For the 13-week periods ended October 28, 2023 and October 29, 2022, the Company recorded an income tax benefit of approximately $1.3 million, or 16.8% of the loss before income taxes compared to an expense of approximately $57,000, or (0.8)% of the loss before income taxes, respectively. For the 39-week periods ended October 28, 2023 and October 29, 2022, the Company recorded an income tax expense of approximately $720,000, or (1.9)% of the loss before income taxes compared to an expense of approximately $355,000, or (0.9)% of the loss before income taxes, respectively. The change in income taxes for the 13-week and 39-week periods ended October 28, 2023, compared to the prior year period, was primarily due to valuation allowance adjustments and state income taxes.

The Company recognizes deferred tax assets and liabilities using estimated future tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities, including net operating loss carry forwards. Management assesses the realizability of deferred tax assets and records a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers the probability of future taxable income and our historical profitability, among other factors, in assessing the amount of the valuation allowance. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more than the net amount recorded. Any change in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement of operations based on the nature of the deferred tax asset deemed realizable in the period in which such determination is made. As of October 28, 2023 and October 29, 2022, the Company recorded a full valuation allowance against deferred tax assets.

Note 4 – Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during each period presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares outstanding plus the dilutive effect of stock equivalents outstanding during the applicable periods using the treasury stock method. Diluted loss per share reflects the

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potential dilution that could occur if options to purchase stock were exercised into common stock and if outstanding grants of restricted stock were vested. Stock options and restricted stock units that were not included in the computation of diluted loss per share, because to do so would have been antidilutive, were approximately 695,000 shares and 531,000 shares for the 13-week periods ended October 28, 2023 and October 29, 2022, respectively, and 696,000 shares and 597,000 shares for the 39-week periods ended October 28, 2023 and October 29, 2022, respectively.

Note 5 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short maturities. The revolving line of credit approximates fair value due to the one, three or six-month interest terms. The Company also has a non-depleting collateral trust with the Company’s workers’ compensation and general liability insurance provider named as beneficiary. The assets in this trust are invested in financial instruments that would fall within Level 1 of the fair value hierarchy, and they are included in other assets on the consolidated balance sheets.

The Company measures certain assets at fair value on a non-recurring basis, including the evaluation of long-lived assets for impairment using Company-specific assumptions, including forecasts of projected financial information that would fall within Level 3 of the fair value hierarchy. The Company uses market participant rents (Level 2 input) to calculate the fair value of right-of-use assets and discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant (Level 2 input) to quantify fair value for other long-lived assets.

Note 6 – Commitments and Contingencies

The Company was named as a defendant in a putative class action filed in April 2017 in the United States District Court for the Western District of Pennsylvania, Gennock v. Kirkland’s, Inc. The complaint alleged that the Company, in violation of federal law, published more than the last five digits of a credit or debit card number on customers’ receipts and sought statutory and punitive damages and attorneys’ fees and costs. On October 21, 2019, the District Court dismissed the matter and ruled that the Plaintiffs did not have standing based on the Third Circuit’s recent decision in Kamal v. J. Crew Group, Inc., 918 F.3d 102 (3d. Cir. 2019). Following the dismissal in federal court, on October 25, 2019, the plaintiffs filed a Praecipe to Transfer the case to Pennsylvania state court, and on August 20, 2020, the court ruled that the plaintiffs have standing. The Company appealed that ruling, and on April 27, 2022, the Superior Court of Pennsylvania granted the Company’s petition for permission to appeal. On May 16, 2023, the Superior Court of Pennsylvania ruled that plaintiffs lacked standing under Pennsylvania law and dismissed plaintiffs’ complaint. On November 14, 2023, the Pennsylvania Supreme Court decided not to take the case on appeal. The matter is closed, and it did not have a material adverse effect on the Company’s consolidated financial condition, operating results or cash flows.

The Company was named as a defendant in a putative class action filed in May 2018 in the Superior Court of California, Miles v. Kirkland’s Stores, Inc. The case has been removed to United States District Court for the Central District of California. The complaint alleges, on behalf of Miles and all other hourly Kirkland’s employees in California, various wage and hour violations and seeks unpaid wages, statutory and civil penalties, monetary damages and injunctive relief. Kirkland’s denies the material allegations in the complaint and believes that its employment policies are generally compliant with California law. On March 22, 2022, the District Court denied the plaintiff’s motion to certify in its entirety, and on May 26, 2022, the Ninth Circuit granted the plaintiff’s petition for permission to appeal. The Court has stayed the entire case pending the appeal. The Company continues to believe the case is without merit and intends to vigorously defend itself against the allegations.

The Company was named as a defendant in a putative class action filed in August 2022 in the United States District Court for the Southern District of New York, Sicard v. Kirkland’s Stores, Inc. The complaint alleges, on behalf of Sicard and all other hourly store employees based in New York, that Kirkland’s violated New York Labor Law Section 191 by failing to pay him and the putative class members their wages within seven calendar days after the end of the week in which those wages were earned, rather paying wages on a bi-weekly basis. Plaintiff claims the putative class is entitled to recover from the Company the amount of their untimely paid wages as liquidated damages, reasonable attorneys’ fees and costs. The Company believes the case is without merit and intends to vigorously defend itself against the allegations.

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The Company is also party to other pending legal proceedings and claims that arise in the normal course of business. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company’s management is of the opinion that it is unlikely that such proceedings and any claims in excess of insurance coverage will have a material effect on its consolidated financial condition, operating results or cash flows.

Note 7 – Stock-Based Compensation

The Company maintains equity incentive plans under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights to employees, non-employee directors and consultants. Compensation expense is recognized on a straight-line basis over the vesting periods of each grant. There have been no material changes in the assumptions used to compute compensation expense during the current year. The table below sets forth selected stock-based compensation information (in thousands, except share amounts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations)	$	277	$	295	$	891	$	1,460
Restricted stock units granted		—		50,000		374,440		409,800
Stock options granted		—		40,000		237,675		40,000

During the 39-week period ended October 29, 2022, the Company also granted performance-based restricted stock units (“PSUs”) that are subject to the achievement of specified performance goals over a specified performance period. The performance metrics for the PSUs were earnings before interest, taxes, depreciation and amortization (“EBITDA”) compared to target EBITDA and also included a relative shareholder return modifier. No shares were issued and no expense was recorded with respect to the PSUs granted in fiscal 2022, as the EBITDA performance condition was not probable of being achieved.

Note 8 – Share Repurchase Plan

On January 6, 2022, the Company announced that its Board of Directors authorized a share repurchase plan providing for the purchase in the aggregate of up to $30.0 million of the Company’s outstanding common stock. Repurchases of shares are made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases are based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time. As of October 28, 2023, the Company had approximately $26.3 million remaining under the current share repurchase plan. The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Shares repurchased and retired		—		—		—		479,966
Share repurchase cost	$	—	$	—	$	—	$	6,253

Note 9 – Senior Credit Facility

On March 31, 2023, the Company entered into a Third Amended and Restated Credit Agreement (the “2023 Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and lender. The 2023 Credit Agreement amended the previous Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) from a $75.0 million senior secured revolving credit facility to a $90.0 million senior secured revolving credit facility. The 2023 Credit Agreement contains substantially similar terms and conditions as the 2019 Credit Agreement including a swingline availability of $10.0 million, a $25.0 million incremental accordion feature and extended its maturity date to March 2028. Advances under the 2023 Credit Agreement bear interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus a margin ranging from 200 to 250 basis points with no SOFR floor. Upon the demonstration that the Company’s fixed charge coverage ratio is greater than 1.0 to 1.0 on a trailing twelve-month basis, the interest rate permanently decreases on the 2023 Credit Agreement to SOFR plus a margin of 150 to 200 basis points. Advances under the 2019 Credit Agreement bore interest at an annual rate equal to SOFR, or the London Interbank Offered Rate (“LIBOR”) through December 16, 2022, plus a margin ranging from 125 to 175 basis points with no SOFR or LIBOR floor. The fee paid to the lenders on the unused portion of the 2023 Credit Agreement is 25 basis points when usage is greater than 50% of the facility amount; otherwise, the fee on the unused portion is 37.5 basis points per annum. Under the 2019 Credit Agreement, the fee on the unused portion was 25 basis points per annum.

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Borrowings under the Credit Agreements are subject to certain conditions, and the Credit Agreements contain customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and certain events under the Employee Retirement Income Security Act of 1974 (“ERISA”). Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the Credit Agreements may be declared immediately due and payable. The maximum availability under the Credit Agreements is limited by both a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves, and an excess required availability covenant, which limits the borrowing base formula by the greater of 10% of the borrowing base formula or $8.0 million.

The Company is subject to a Second Amended and Restated Security Agreement (the “Security Agreement”) with Bank of America, N.A. Pursuant to the Security Agreement, the Company pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of the Company’s assets to secure the payment and performance of the obligations under the Credit Agreements.

As of October 28, 2023, the Company was in compliance with the covenants in the 2023 Credit Agreement. Under the 2023 Credit Agreement, there were $62.0 million in outstanding borrowings and no letters of credit outstanding with approximately $27.2 million available for borrowing as of October 28, 2023, before the minimum required excess availability covenant.

Note 10 – Impairment

The Company evaluates the recoverability of the carrying amounts of long-lived assets when events or changes in circumstances dictate that their carrying values may not be recoverable. This review includes the evaluation of individual under-performing retail stores and the assessment of the recoverability of the carrying value of the assets related to the stores. Future cash flows are projected for the remaining lease life. If the estimated future cash flows are less than the carrying value of the assets, the Company records an impairment charge equal to the difference between the assets’ fair value and carrying value. The fair value is estimated using a discounted cash flow approach, considering such factors as future sales levels, gross margins, changes in rent and other expenses as well as the overall operating environment specific to that store. The amount of the impairment charge is allocated proportionately to all assets in the asset group with no asset written down below its individual fair value.

The table below sets forth impairment information (in thousands, except store counts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Impairment of leasehold improvements, fixtures and equipment at stores	$	268	$	154	$	595	$	382
Impairment of other long-lived assets(1)		48		65		947		65
Total impairment	$	316	$	219	$	1,542	$	447

Number of stores with leasehold improvements, fixtures and equipment impairment		4		2		6		4

(1)

Other long-lived asset impairment includes the write-off of software costs, cloud computing implementation costs and fixtures related to the closing of two e-commerce distribution centers in fiscal 2023.

Note 11 – Subsequent Event

Subsequent to October 28, 2023, the Company repaid a net $27.0 million under the 2023 Credit Agreement.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the 13-week and 39-week periods ended October 28, 2023 and October 29, 2022. For a comparison of our results of operations for the 52-week periods ended January 28, 2023 and January 29, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on April 4, 2023 (the “Annual Report”). The following discussion should be read with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Except for historical information contained herein, certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements deal with potential future circumstances and developments and are, accordingly, forward-looking in nature. You are cautioned that such forward-looking statements, which may be identified by words such as “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “seek,” “may,” “could,” “strategy,” and similar expressions, involve known and unknown risks and uncertainties, many of which are outside of the Company’s control, which may cause our actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, risks associated with the Company's liquidity including cash flows from operations and the amount of borrowings under the secured revolving credit facility, the Company’s actual and anticipated progress towards its short-term and long-term objectives including its brand strategy, the risk of natural disasters, pandemic outbreaks (such as COVID-19), global political events, war and terrorism could impact the Company’s revenues, inventory and supply chain, the continuing consumer impact of inflation and countermeasures, including raising interest rates, the effectiveness of the Company’s marketing campaigns, risks related to changes in U.S. policy related to imported merchandise, particularly with regard to the impact of tariffs on goods imported from China and strategies undertaken to mitigate such impact, the Company’s ability to retain its senior management team, continued volatility in the price of the Company’s common stock, the competitive environment in the home décor industry in general and in our specific market areas, inflation, fluctuations in cost and availability of inventory, increased transportation costs and potential interruptions in supply chain, distribution systems and delivery network, including our e-commerce systems and channels, the ability to control employment and other operating costs, availability of suitable retail locations and other growth opportunities, disruptions in information technology systems including the potential for security breaches of our information or our customers’ information, seasonal fluctuations in consumer spending, and economic conditions in general. Those and other risks are more fully described in our filings with the Securities and Exchange Commission, including the Company’s Annual Report and subsequent reports. Forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof. Any changes in assumptions or factors on which such statements are based could produce materially different results. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Overview

We are a specialty retailer of home décor and furnishings in the United States. As of October 28, 2023, we operated a total of 339 stores in 35 states, as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand. We provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home décor along with inspirational design ideas. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allows our customers to furnish their home at a great value.

Key Financial Measures

Net sales and gross profit are the most significant drivers of our operating performance. Net sales consists of all merchandise sales to customers, net of returns, shipping revenue associated with e-commerce sales, gift card breakage revenue, revenue earned from our private label credit card program and excludes sales taxes. Gross profit is the difference between net sales and cost of sales. Cost of sales has five distinct components: merchandise costs (including product costs, inbound freight expenses, inventory shrink and damages), store occupancy costs, outbound freight costs (including both store and e-commerce shipping expenses), central distribution costs and depreciation of store and distribution center assets. Merchandise and outbound freight costs are variable, while occupancy and central distribution costs are largely fixed. Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors including overall sales performance.

We use comparable sales to measure sales increases and decreases from stores that have been open for at least 13 full fiscal months, including our online sales. We remove closed stores from our comparable sales calculation the day after the stores close. Relocated

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stores remain in our comparable sales calculation. E-commerce sales, including shipping revenue, are included in comparable sales. Increases in comparable sales are an important factor in maintaining or increasing our profitability.

Operating expenses, including the costs of operating our stores and corporate headquarters, are also an important component of our operating performance. Compensation and benefits comprise the majority of our operating expenses. Operating expenses contain fixed and variable costs, and managing the operating expense ratio (operating expenses expressed as a percentage of net sales) is an important focus of management as we seek to increase our overall profitability. Operating expenses include cash costs as well as non-cash costs, such as depreciation and amortization associated with omni-channel technology, corporate property and equipment, and impairment of long-lived assets. Because many operating expenses are fixed costs, and because operating costs tend to rise over time, increases in comparable sales typically are necessary to prevent meaningful increases in the operating expense ratio. Operating expenses can also include certain costs that are of a one-time or non-recurring nature. While these costs must be considered to fully understand our operating performance, we typically identify such costs separately where significant in the consolidated statements of operations so that we can evaluate comparable expense data across different periods.

Stores

The following table summarizes store information during the periods indicated:


	13-Week Period Ended						39-Week Period Ended
	October 28, 2023			October 29, 2022			October 28, 2023			October 29, 2022
New store openings		—			1			—			1
Permanent store closures		1			1			7			6
Store relocations		1			—			1			—
Decrease in store units		(0.3	)%		0.0	%		(2.0	)%		(1.4	)%

The following table summarizes our open stores and square footage under lease as of the dates indicated:


	October 28, 2023		October 29, 2022
Number of stores		339		356
Square footage		2,744,048		2,855,146
Average square footage per store		8,095		8,020

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13-Week Period Ended October 28, 2023 Compared to the 13-Week Period Ended October 29, 2022

Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:


	13-Week Period Ended
	October 28, 2023						October 29, 2022						Change
	$			%			$			%			$			%
Net sales	$	116,365			100.0	%	$	130,962			100.0	%	$	(14,597	)		(11.1	)%
Cost of sales		85,712			73.7			98,275			75.0			(12,563	)		(12.8	)
Gross profit		30,653			26.3			32,687			25.0			(2,034	)		(6.2	)
Operating expenses:
Compensation and benefits		19,841			17.0			20,794			15.9			(953	)		(4.6	)
Other operating expenses		16,104			13.8			16,757			12.8			(653	)		(3.9	)
Depreciation (exclusive of depreciation included in cost of sales)		1,043			0.9			1,577			1.2			(534	)		(33.9	)
Asset impairment		316			0.3			219			0.2			97			44.3
Total operating expenses		37,304			32.0			39,347			30.1			(2,043	)		(5.2	)
Operating loss		(6,651	)		(5.7	)		(6,660	)		(5.1	)		9			(0.1	)
Interest expense		1,163			1.0			704			0.6			459			65.2
Other income		(127	)		(0.1	)		(80	)		(0.1	)		(47	)		58.8
Loss before income taxes		(7,687	)		(6.6	)		(7,284	)		(5.6	)		(403	)		5.5
Income tax (benefit) expense		(1,290	)		(1.1	)		57			0.0			(1,347	)		(2,363.2	)
Net loss	$	(6,397	)		(5.5	)%	$	(7,341	)		(5.6	)%	$	944			(12.9	)%

Net sales. Net sales decreased 11.1% to $116.4 million for the third 13 weeks of fiscal 2023 compared to $131.0 million for the prior year period, which includes a 4.8% decline in store count. Comparable sales, including e-commerce sales, decreased 9.2%, or $11.8 million, for the third 13 weeks of fiscal 2023 compared to the prior year period. For the third 13 weeks of fiscal 2023, e-commerce comparable sales decreased 8.5% compared to the prior year period, and store sales decreased 9.5% compared to the prior year period. The decrease in comparable sales was driven by a decrease in average ticket and a decline in both in-store and online traffic, which was partially offset by higher conversion in both channels. Merchandise categories performing below prior period levels include furniture, harvest seasonal and wall décor, while decorative accessories and Christmas seasonal performed above prior period levels.

Gross profit. Gross profit as a percentage of net sales increased 130 basis points from 25.0% in the third 13 weeks of fiscal 2022 to 26.3% in the third 13 weeks of fiscal 2023. The overall increase in gross profit margin was due to favorable merchandise margin, distribution center costs and depreciation, partially offset by unfavorable store occupancy costs. Merchandise margin increased approximately 110 basis points from 52.9% in the third 13 weeks of fiscal 2022 to 54.0% in the third 13 weeks of fiscal 2023, mainly due to lower inbound freight rates and inventory levels, along with improved product flow. Distribution center costs decreased approximately 110 basis points to 6.1% of net sales due to improved levels of cost capitalization in inventory in the current year period. Depreciation of store and distribution center assets decreased approximately 40 basis points to 1.5% of net sales in the third 13 weeks of fiscal 2023 due to certain assets becoming fully depreciated. Store occupancy costs increased approximately 130 basis points to 12.1% of net sales due to the sales deleverage on these fixed costs. Outbound freight costs, including both store and e-commerce shipping expenses, remained consistent at 8.0% of net sales, as lower inventory levels and fewer shipping routes to the stores offset increased e-commerce shipping expenses.

Compensation and benefits. Compensation and benefits as a percentage of net sales increased approximately 110 basis points from 15.9% in the third 13 weeks of fiscal 2022 to 17.0% in the third 13 weeks of fiscal 2023 primarily due to sales deleverage of store payroll costs, partially offset by reductions in corporate salaries.

Other operating expenses. Other operating expenses as a percentage of net sales increased approximately 100 basis points from 12.8% in the third 13 weeks of fiscal 2022 to 13.8% in the third 13 weeks of fiscal 2023. The decrease as a percentage of net sales was primarily related to the deleverage of advertising expenses and other expenses.

Income tax (benefit) expense. We recorded income tax benefit of approximately $1.3 million, or 16.8% of the loss before income taxes, during the third 13 weeks of fiscal 2023, compared to an income tax expense of approximately $57,000, or (0.8)% of the loss

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before income taxes, during the prior year period. The change in the tax rate for the third 13 weeks of fiscal 2023 compared to the prior period was primarily due to valuation allowance adjustments and state income taxes.

Net loss and loss per share. We reported net loss of $6.4 million, or a loss of $0.50 per diluted share, for the third 13 weeks of fiscal 2023 as compared to net loss of $7.3 million, or a loss of $0.58 per diluted share, for the third 13 weeks of fiscal 2022.

39-Week Period Ended October 28, 2023 Compared to the 39-Week Period Ended October 29, 2022

Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:


	39-Week Period Ended
	October 28, 2023						October 29, 2022						Change
	$			%			$			%			$			%
Net sales	$	302,744			100.0	%	$	336,348			100.0	%	$	(33,604	)		(10.0	)%
Cost of sales		228,781			75.6			256,844			76.4			(28,063	)		(10.9	)
Gross profit		73,963			24.4			79,504			23.6			(5,541	)		(7.0	)
Operating expenses:
Compensation and benefits		59,097			19.5			63,193			18.8			(4,096	)		(6.5	)
Other operating expenses		44,932			14.8			50,549			15.1			(5,617	)		(11.1	)
Depreciation (exclusive of depreciation included in cost of sales)		3,471			1.2			4,870			1.4			(1,399	)		(28.7	)
Asset impairment		1,542			0.5			447			0.1			1,095			245.0
Total operating expenses		109,042			36.0			119,059			35.4			(10,017	)		(8.4	)
Operating loss		(35,079	)		(11.6	)		(39,555	)		(11.8	)		4,476			(11.3	)
Interest expense		2,415			0.8			1,226			0.4			1,189			97.0
Other income		(346	)		(0.1	)		(235	)		(0.1	)		(111	)		47.2
Loss before income taxes		(37,148	)		(12.3	)		(40,546	)		(12.1	)		3,398			(8.4	)
Income tax expense		720			0.2			355			0.1			365			102.8
Net loss	$	(37,868	)		(12.5	)%	$	(40,901	)		(12.2	)%	$	3,033			(7.4	)%

Net sales. Net sales decreased 10.0% to $302.7 million for the first 39 weeks of fiscal 2023 compared to $336.3 million for the prior year period, which includes a 4.8% decline in store count. Comparable sales, including e-commerce sales, decreased 7.9%, or $25.8 million for the first 39 weeks of fiscal 2023 compared to the prior year period. For the first 39 weeks of fiscal 2023, e-commerce comparable sales decreased 10.4%, and store sales decreased 6.9% compared to the prior year period. The decrease in comparable sales is primarily due to a decrease in traffic and ticket in stores and online, partially offset by an increase in conversion. Most merchandise categories performed below prior period levels.

Gross profit. Gross profit as a percentage of net sales increased 80 basis points from 23.6% in the first 39 weeks of fiscal 2022 to 24.4% in the first 39 weeks of fiscal 2023. The overall increase in gross profit margin was due to favorable merchandise margin and depreciation, partially offset by unfavorable store occupancy costs, distribution center costs and outbound freight costs. Merchandise margin increased approximately 200 basis points from 52.1% in the first 39 weeks of fiscal 2022 to 54.1% in the first 39 weeks of fiscal 2023 mainly due to lower inbound freight costs and lower inventory levels. Depreciation of store and distribution center assets decreased approximately 50 basis points to 1.9% of net sales in the first 39 weeks of fiscal 2023 due to certain assets becoming fully depreciated. Store occupancy costs increased approximately 140 basis points to 13.9% of net sales due to the sales deleverage on these fixed costs. Distribution center costs increased approximately 20 basis points to 6.0% of net sales due to sales deleverage and high levels of cost capitalization in inventory in the prior year period, partially offset by lower operating costs. Outbound freight costs, including both store and e-commerce shipping expenses, increased approximately 10 basis points to 7.9% of net sales.

Compensation and benefits. Compensation and benefits as a percentage of net sales increased approximately 70 basis points from 18.8% in the first 39 weeks of fiscal 2022 to 19.5% in the first 39 weeks of fiscal 2023 primarily due to the deleverage of store payroll expenses.

Other operating expenses. Other operating expenses as a percentage of net sales decreased approximately 30 basis points from 15.1% in the first 39 weeks of fiscal 2022 to 14.8% for the first 39 weeks of fiscal 2023. The decrease as a percentage of net sales was primarily related to a reduction in advertising expenses, partially offset by sales deleverage.

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Income tax expense. We recorded income tax expense of approximately $720,000, or (1.9)% of the loss before income taxes, during the first 39 weeks of fiscal 2023 compared to income tax expense of $355,000, or (0.9)% of the loss before income taxes, during the prior year period. The change in the tax rate for the first 39 weeks of fiscal 2023 compared to the prior period was primarily due to valuation allowance adjustments and state income taxes.

Net loss and loss per share. We reported net loss of $37.9 million, or a loss of $2.95 per diluted share, for the first 39 weeks of fiscal 2023 as compared to a net loss of $40.9 million, or a loss of $3.22 per diluted share, for the first 39 weeks of fiscal 2022.

Non-GAAP Financial Measures

To supplement our unaudited consolidated condensed financial statements presented in accordance with generally accepted accounting principles (“GAAP”), we provide certain non-GAAP financial measures, including EBITDA, adjusted EBITDA and adjusted operating loss. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures. The Company uses these non-GAAP financial measures internally in analyzing our financial results and believes that they provide useful information to analysts and investors, as a supplement to GAAP financial measures, in evaluating the Company’s operational performance.

The Company defines EBITDA as net loss before interest and the provision for income tax, which is equivalent to operating loss, adjusted for depreciation, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating loss as operating loss with non-GAAP adjustments.

Non-GAAP financial measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Each non-GAAP financial measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The Company’s non-GAAP adjustments remove asset impairment and stock-based compensation expense, due to the non-cash nature of these expenses, and remove severance charges and lease termination costs, as those expenses can fluctuate based on the needs of the business and do not represent a normal, recurring operating expense.

The following table shows a reconciliation of operating loss to EBITDA and adjusted EBITDA (in thousands) for the 13-week and 39-week periods ended October 28, 2023 and October 29, 2022:


	13-Week Period Ended						39-Week Period Ended
	October 28, 2023			October 29, 2022			October 28, 2023			October 29, 2022
Operating loss	$	(6,651	)	$	(6,660	)	$	(35,079	)	$	(39,555	)
Depreciation		2,769			4,088			9,118			12,925
EBITDA		(3,882	)		(2,572	)		(25,961	)		(26,630	)
Non-GAAP adjustments:
Closed store and lease termination costs in cost of sales(1)		—			—			—			46
Asset impairment(2)		316			219			1,542			447
Stock-based compensation expense(3)		277			295			891			1,460
Severance charges(4)		50			397			957			776
Total adjustments in operating expenses		643			911			3,390			2,683
Total non-GAAP adjustments		643			911			3,390			2,729
Adjusted EBITDA		(3,239	)		(1,661	)		(22,571	)		(23,901	)
Depreciation		2,769			4,088			9,118			12,925
Adjusted operating loss	$	(6,008	)	$	(5,749	)	$	(31,689	)	$	(36,826	)

(1)

Costs associated with asset disposals, closed stores and lease termination costs.

(2)

Asset impairment charges are related to property and equipment, software costs and cloud computing implementation costs.

(3)

Stock-based compensation expense includes amounts amortized to expense related to equity incentive plans.

(4)

Severance charges include expenses related to severance agreements and permanent store closure compensation costs.

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Liquidity and Capital Resources

Our principal capital requirements are for working capital and capital expenditures. Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak by the early portion of the fourth quarter of each fiscal year. Capital expenditures primarily relate to technology and omni-channel projects, existing store refreshes, remodels and maintenance, new or relocated stores and distribution center and supply chain enhancements. Historically, we have funded our working capital and capital expenditure requirements with internally generated cash and borrowings under our revolving credit facility.

Cash flows from operating activities. Net cash used in operating activities was approximately $42.7 million and $58.2 million during the first 39 weeks of fiscal 2023 and the first 39 weeks of fiscal 2022, respectively. Cash flows from operating activities depend heavily on operating performance and changes in working capital. The decrease in the amount of cash used in operations as compared to the prior year period was mainly due to changes in working capital including an increase in accounts payable, partially offset by changes in inventory levels, as we were over stocked in the prior fiscal year.

Cash flows from investing activities. Net cash used in investing activities for the first 39 weeks of fiscal 2023 consisted primarily of $3.3 million in capital expenditures as compared to $7.0 million in capital expenditures for the prior year period. The table below sets forth capital expenditures by category (in thousands) for the periods indicated:


	39-Week Period Ended
	October 28, 2023		October 29, 2022
Technology and omni-channel projects	$	1,619	$	3,536
Existing stores		896		1,959
New and relocated stores		484		426
Corporate		243		136
Distribution center and supply chain enhancements		71		907
Total capital expenditures	$	3,313	$	6,964

The capital expenditures in the current and prior year period related primarily to technology and omni-channel projects and the maintenance of existing stores.

Cash flows from financing activities. During the first 39 weeks of fiscal 2023, net cash provided by financing activities was $46.5 million, as we borrowed $52.0 million under our revolving credit facility, which was partially offset by repayments of $5.0 million. During the first 39 weeks of fiscal 2022, net cash provided by financing activities was approximately $51.4 million as we borrowed $60.0 million under our revolving credit facility, which was partially offset by the repurchase and retirement of our common stock pursuant to our share repurchase plan of $6.3 million and $2.4 million of cash used in the net share settlement of equity incentive awards.

Senior credit facility. On March 31, 2023, we entered into the 2023 Credit Agreement with Bank of America, N.A., as administrative agent and collateral agent, and lender. The 2023 Credit Agreement amended the 2019 Credit Agreement from a $75.0 million senior secured revolving credit facility to a $90.0 million senior secured revolving credit facility. The 2023 Credit Agreement contains substantially similar terms and conditions as the 2019 Credit Agreement including a swingline availability of $10.0 million, a $25.0 million incremental accordion feature and extended its maturity date to March 2028. Advances under the 2023 Credit Agreement bear interest at an annual rate equal to SOFR plus a margin ranging from 200 to 250 basis points with no SOFR floor. Upon the demonstration that the Company’s fixed charge coverage ratio is greater than 1.0 to 1.0 on a trailing twelve-month basis, the interest rate permanently decreases on the 2023 Credit Agreement to SOFR plus a margin of 150 to 200 basis points. Advances under the 2019 Credit Agreement bore interest at an annual rate equal to SOFR, or LIBOR through December 16, 2022, plus a margin ranging from 125 to 175 basis points with no SOFR or LIBOR floor. The fee paid to the lenders on the unused portion of the 2023 Credit Agreement is 25 basis points when usage is greater than 50% of the facility amount; otherwise, the fee on the unused portion is 37.5 basis points per annum. Under the 2019 Credit Agreement, the fee on the unused portion was 25 basis points per annum.

Borrowings under the Credit Agreements are subject to certain conditions, and the Credit Agreements contain customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and certain events under ERISA. Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the Credit Agreements may be declared immediately due and payable. The maximum availability under the Credit Agreements is limited by both a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves, and an excess required availability covenant, which limits the borrowing base formula by the greater of 10% of the borrowing base formula or $8.0 million.

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We are subject to a Security Agreement with Bank of America, N.A. Pursuant to the Security Agreement, we pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of our assets to secure the payment and performance of the obligations under the Credit Agreements.

As of October 28, 2023, we were in compliance with the covenants in the 2023 Credit Agreement. Under the 2023 Credit Agreement, there were approximately $62.0 million of outstanding borrowings and no letters of credit outstanding with approximately $27.2 million available for borrowing as of October 28, 2023, before the minimum required excess availability covenant. Subsequent to October 28, 2023, we repaid a net $27.0 million under the 2023 Credit Agreement.

As of October 28, 2023, our balance of cash and cash equivalents was approximately $5.8 million. We believe that the combination of our cash balances, cash flow from operations and availability under our 2023 Credit Agreement will be sufficient to fund our planned capital expenditures and working capital requirements for at least the next twelve months.

Share repurchase plan. On January 6, 2022, we announced that our Board of Directors authorized a share repurchase plan providing for the purchase in the aggregate of up to $30.0 million of our outstanding common stock. Repurchases of shares are made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases are based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase plans at any time. As of October 28, 2023, we had approximately $26.3 million remaining under the current share repurchase plan.

The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Shares repurchased and retired		—		—		—		479,966
Share repurchase cost	$	—	$	—	$	—	$	6,253

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies or estimates during the 39-week period ended October 28, 2023. Refer to our Annual Report for a summary of our critical accounting policies and a discussion of the critical accounting estimates and assumptions impacting our consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate changes, primarily as a result of borrowings under our Credit Agreements, as discussed in “Note 9 — Senior Credit Facility,” in the notes to the condensed consolidated financial statements, which bear interest based on variable rates. As of October 28, 2023, we had $62.0 million in outstanding borrowings under our 2023 Credit Agreement. As of October 29, 2022, we had $60.0 million in outstanding borrowings under our 2019 Credit Agreement. Subsequent to October 28, 2023, we repaid a net $27.0 million under our 2023 Credit Agreement. A one percent increase or decrease in the interest rate on borrowings under our revolving credit facility at our recent borrowing levels would not have a material impact to our results of operations.

We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per institution, and we may purchase investments not guaranteed by the Federal Deposit Insurance Company. Accordingly, there is a risk that we will not recover the full principal of our investments or that their liquidity may be diminished.

We were not engaged in any foreign exchange contracts, hedges, interest rate swaps, derivatives or other financial instruments as of October 28, 2023.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Both our Interim Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), after the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) was performed by management with the participation of our Interim Chief Executive Officer and Chief Financial Officer, have concluded that, as of October 28, 2023, our disclosure controls and procedures were effective as of the end of the period covered by this report.

Change in internal controls over financial reporting. There have been no changes in internal control over financial reporting that have occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of the Company’s legal proceedings, refer to “Note 6 — Commitments and Contingencies,” in the notes to the condensed consolidated financial statements.

ITEM 1A. RISK FACTORS

The risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report should be carefully considered together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC, in connection with evaluating the Company, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes to our risk factors as previously disclosed in the Annual Report. The risks described in this report and in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Repurchases of Equity Securities

On January 6, 2022, we announced that our Board of Directors authorized share repurchase plans providing for the purchase in the aggregate of up to $30.0 million of our outstanding common stock. Repurchases of shares are made in accordance with applicable securities laws and may be made from time to time in the open market or negotiated transactions. The amount and timing of repurchases are based on a variety of factors, including stock price, regulator limitations and other market and economic factors. The share repurchase plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase plans at any time. There were no shares of common stock repurchased by the Company during the 39-week period ended October 28, 2023. As of October 28, 2023, the Company had approximately $26.3 million remaining under the current share repurchase plan.

ITEM 6. EXHIBITS

(a)

Exhibits.


Exhibit No.		Description of Document
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		KIRKLAND’S, INC.
Date: November 30, 2023		/s/ Ann E. Joyce
		Ann E. Joyce Interim Chief Executive Officer and Director
Date: November 30, 2023		/s/ W. Michael Madden
		W. Michael Madden Executive Vice President, Chief Financial Officer

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Ann E. Joyce, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Kirkland’s, Inc. (“registrant”);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 30, 2023		/s/ Ann E. Joyce
		Ann E. Joyce
		Interim Chief Executive Officer and Director

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, W. Michael Madden, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Kirkland’s, Inc. (“registrant”);

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 30, 2023		/s/ W. Michael Madden
		W. Michael Madden
		Executive Vice President, Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Kirkland’s, Inc. (the “Company”) on Form 10-Q for the third quarter ended October 28, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ann E. Joyce, Interim Chief Executive Officer and Director of the Company, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.


		/s/ Ann E. Joyce
		Interim Chief Executive Officer and Director
		November 30, 2023

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Kirkland’s, Inc. (the “Company”) on Form 10-Q for the third quarter ended October 28, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Michael Madden, Executive Vice President, Chief Financial Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)


		/s/ W. Michael Madden
		Executive Vice President, Chief Financial Officer
		November 30, 2023

Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Oct. 28, 2023	Nov. 25, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Oct. 28, 2023
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--02-03
Entity Registrant Name	Kirkland’s, Inc.
Entity Central Index Key	0001056285
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Interactive Data Current	Yes
Entity Current Reporting Status	Yes
Entity File Number	000-49885
Entity Tax Identification Number	62-1287151
Entity Address, Address Line One	5310 Maryland Way
Entity Address, City or Town	Brentwood
Entity Address, State or Province	TN
Entity Incorporation, State or Country Code	TN
Entity Address, Postal Zip Code	37027
City Area Code	615
Local Phone Number	872-4800
Title of 12(b) Security	Common Stock
Trading Symbol	KIRK
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		12,923,677

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Oct. 28, 2023	Jan. 28, 2023	Oct. 29, 2022
Current assets:
Cash and cash equivalents	$ 5,765	$ 5,171	$ 11,245
Inventories, net	105,190	84,071	126,315
Prepaid expenses and other current assets	5,863	5,089	7,126
Total current assets	116,818	94,331	144,686
Property and equipment:
Equipment	19,556	19,614	19,929
Furniture and fixtures	65,302	66,906	68,580
Leasehold improvements	101,925	103,525	106,524
Computer software and hardware	83,236	81,685	80,142
Projects in progress	643	743	2,594
Property and equipment, gross	270,662	272,473	277,769
Accumulated depreciation	(239,014)	(233,797)	(235,140)
Property and equipment, net	31,648	38,676	42,629
Operating lease right-of-use assets	130,513	134,525	136,280
Other assets	6,848	6,714	7,979
Total assets	285,827	274,246	331,574
Current liabilities:
Accounts payable	55,729	43,739	47,157
Accrued expenses	23,484	26,069	27,027
Operating lease liabilities	39,966	41,499	40,156
Total current liabilities	119,179	111,307	114,340
Operating lease liabilities	108,248	114,613	119,254
Revolving line of credit	62,000	15,000	60,000
Other liabilities	3,685	3,553	4,915
Total liabilities	293,112	244,473	298,509
Shareholders’ equity:
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding at October 28, 2023, January 28, 2023, and October 29, 2022, respectively	0	0	0
Common stock, no par value; 100,000,000 shares authorized; 12,923,677; 12,754,368; and 12,754,368 shares issued and outstanding at October 28, 2023, January 28, 2023, and October 29, 2022, respectively	176,260	175,450	174,949
Accumulated deficit	(183,545)	(145,677)	(141,884)
Total shareholders' (deficit) equity	(7,285)	29,773	33,065
Total liabilities and shareholders' (deficit) equity	$ 285,827	$ 274,246	$ 331,574

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - $ / shares	Oct. 28, 2023	Jan. 28, 2023	Oct. 29, 2022
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0	$ 0	$ 0
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0	0
Preferred stock, shares outstanding (in shares)	0	0	0
Common stock, par value	$ 0	$ 0	$ 0
Common stock, shares authorized (in shares)	100,000,000	100,000,000	100,000,000
Common stock, shares issued (in shares)	12,923,677	12,754,368	12,754,368
Common stock, shares outstanding (in shares)	12,923,677	12,754,368	12,754,368

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022	Oct. 28, 2023	Oct. 29, 2022
Income Statement [Abstract]
Net sales	$ 116,365,000	$ 130,962,000	$ 302,744,000	$ 336,348,000
Cost of sales	85,712,000	98,275,000	228,781,000	256,844,000
Gross profit	30,653,000	32,687,000	73,963,000	79,504,000
Operating expenses:
Compensation and benefits	19,841,000	20,794,000	59,097,000	63,193,000
Other operating expenses	16,104,000	16,757,000	44,932,000	50,549,000
Depreciation (exclusive of depreciation included in cost of sales)	1,043,000	1,577,000	3,471,000	4,870,000
Asset impairment	316,000	219,000	1,542,000	447,000
Total operating expenses	37,304,000	39,347,000	109,042,000	119,059,000
Operating loss	(6,651,000)	(6,660,000)	(35,079,000)	(39,555,000)
Interest expense	1,163,000	704,000	2,415,000	1,226,000
Other income	(127,000)	(80,000)	(346,000)	(235,000)
Loss before income taxes	(7,687,000)	(7,284,000)	(37,148,000)	(40,546,000)
Income tax (benefit) expense	(1,290,000)	57,000	720,000	355,000
Net loss	$ (6,397,000)	$ (7,341,000)	$ (37,868,000)	$ (40,901,000)
Loss per share:
Basic	$ (0.5)	$ (0.58)	$ (2.95)	$ (3.22)
Diluted	$ (0.5)	$ (0.58)	$ (2.95)	$ (3.22)
Weighted average shares outstanding:
Basic	12,921	12,754	12,852	12,686
Diluted	12,921	12,754	12,852	12,686

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY (UNAUDITED) - USD ($) $ in Thousands	Total	Common Stock	Accumulated Deficit
Balance, beginning of period at Jan. 29, 2022	$ 81,126	$ 175,856	$ (94,730)
Balance, beginning of period (in shares) at Jan. 29, 2022		12,631,347
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options	16	$ 16
Exercise of stock options (in shares)		2,705
Restricted stock issued (in shares)		797,849
Net share settlement of stock options and restricted stock units	(2,375)	$ (2,375)
Net share settlement of stock options and restricted stock units (in shares)		(224,320)
Stock-based compensation expense	548	$ 548
Repurchase and retirement of common stock	(6,253)		(6,253)
Repurchase and retirement of common stock (in shares)		(479,966)
Net Income (Loss)	(7,855)		(7,855)
Balance, end of period at Apr. 30, 2022	65,207	$ 174,045	(108,838)
Balance, end of period (in shares) at Apr. 30, 2022		12,727,615
Balance, beginning of period at Jan. 29, 2022	81,126	$ 175,856	(94,730)
Balance, beginning of period (in shares) at Jan. 29, 2022		12,631,347
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options	$ 16
Repurchase and retirement of common stock (in shares)	(479,966)
Net Income (Loss)	$ (40,901)
Balance, end of period at Oct. 29, 2022	$ 33,065	$ 174,949	(141,884)
Balance, end of period (in shares) at Oct. 29, 2022	12,754,368	12,754,368
Balance, beginning of period at Apr. 30, 2022	$ 65,207	$ 174,045	(108,838)
Balance, beginning of period (in shares) at Apr. 30, 2022		12,727,615
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Restricted stock issued (in shares)		28,574
Net share settlement of stock options and restricted stock units	(8)	$ (8)
Net share settlement of stock options and restricted stock units (in shares)		(1,821)
Stock-based compensation expense	617	$ 617
Net Income (Loss)	(25,705)		(25,705)
Balance, end of period at Jul. 30, 2022	40,111	$ 174,654	(134,543)
Balance, end of period (in shares) at Jul. 30, 2022		12,754,368
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense	$ 295	$ 295
Repurchase and retirement of common stock (in shares)	0
Net Income (Loss)	$ (7,341)		(7,341)
Balance, end of period at Oct. 29, 2022	$ 33,065	$ 174,949	(141,884)
Balance, end of period (in shares) at Oct. 29, 2022	12,754,368	12,754,368
Balance, beginning of period at Jan. 28, 2023	$ 29,773	$ 175,450	(145,677)
Balance, beginning of period (in shares) at Jan. 28, 2023	12,754,368	12,754,368
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Restricted stock issued (in shares)		86,824
Net share settlement of stock options and restricted stock units	$ (76)	$ (76)
Net share settlement of stock options and restricted stock units (in shares)		(28,294)
Stock-based compensation expense	490	$ 490
Net Income (Loss)	(12,107)		(12,107)
Balance, end of period at Apr. 29, 2023	18,080	$ 175,864	(157,784)
Balance, end of period (in shares) at Apr. 29, 2023		12,812,898
Balance, beginning of period at Jan. 28, 2023	$ 29,773	$ 175,450	(145,677)
Balance, beginning of period (in shares) at Jan. 28, 2023	12,754,368	12,754,368
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options	$ 0
Repurchase and retirement of common stock (in shares)	0
Net Income (Loss)	$ (37,868)
Balance, end of period at Oct. 28, 2023	$ (7,285)	$ 176,260	(183,545)
Balance, end of period (in shares) at Oct. 28, 2023	12,923,677	12,923,677
Balance, beginning of period at Apr. 29, 2023	$ 18,080	$ 175,864	(157,784)
Balance, beginning of period (in shares) at Apr. 29, 2023		12,812,898
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Restricted stock issued (in shares)		104,475
Stock-based compensation expense	124	$ 124
Net Income (Loss)	(19,364)		(19,364)
Balance, end of period at Jul. 29, 2023	(1,160)	$ 175,988	(177,148)
Balance, end of period (in shares) at Jul. 29, 2023		12,917,373
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Restricted stock issued (in shares)		8,334
Net share settlement of stock options and restricted stock units	(5)	$ (5)
Net share settlement of stock options and restricted stock units (in shares)		(2,030)
Stock-based compensation expense	$ 277	$ 277
Repurchase and retirement of common stock (in shares)	0
Net Income (Loss)	$ (6,397)		(6,397)
Balance, end of period at Oct. 28, 2023	$ (7,285)	$ 176,260	$ (183,545)
Balance, end of period (in shares) at Oct. 28, 2023	12,923,677	12,923,677

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022
Cash flows from operating activities:
Net loss	$ (37,868,000)	$ (40,901,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment	9,118,000	12,925,000
Amortization of debt issue costs	80,000	69,000
Asset impairment	1,542,000	447,000
(Gain) loss on disposal of property and equipment	(20,000)	195,000
Stock-based compensation expense	891,000	1,460,000
Changes in assets and liabilities:
Inventories, net	(21,119,000)	(12,286,000)
Prepaid expenses and other current assets	(891,000)	3,184,000
Accounts payable	11,885,000	(14,648,000)
Accrued expenses	(2,775,000)	(1,873,000)
Income taxes payable (refundable)	307,000	(1,684,000)
Operating lease assets and liabilities	(3,933,000)	(4,670,000)
Other assets and liabilities	97,000	(427,000)
Net cash used in operating activities	(42,686,000)	(58,209,000)
Cash flows from investing activities:
Proceeds from sale of property and equipment	130,000	35,000
Capital expenditures	(3,313,000)	(6,964,000)
Net cash used in investing activities	(3,183,000)	(6,929,000)
Cash flows from financing activities:
Borrowings on revolving line of credit	52,000,000	60,000,000
Repayments on revolving line of credit	(5,000,000)	0
Debt issuance costs	(456,000)	0
Cash used in net share settlement of stock options and restricted stock units	(81,000)	(2,383,000)
Proceeds received from employee stock option exercises	0	16,000
Repurchase and retirement of common stock	0	(6,253,000)
Net cash provided by financing activities	46,463,000	51,380,000
Cash and cash equivalents:
Net increase (decrease)	594,000	(13,758,000)
Beginning of the period	5,171,000	25,003,000
End of the period	5,765,000	11,245,000
Supplemental schedule of non-cash activities:
Non-cash accruals for purchases of property and equipment	$ 804,000	$ 573,000

Description of Business and Basis of Presentation

9 Months Ended

Oct. 28, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Basis of Presentation

Note 1 – Description of Business and Basis of Presentation

Revenue Recognition

9 Months Ended

Oct. 28, 2023

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Note 2 –Revenue Recognition

consolidated balance sheets, totaled approximately $566,000, $359,000 and $616,000 at October 28, 2023, January 28, 2023 and October 29, 2022, respectively.

The table below sets forth selected gift card liability information (in thousands) for the periods indicated:


	October 28, 2023		January 28, 2023		October 29, 2022
Gift card liability, net of estimated breakage (included in accrued expenses)	$	11,448	$	14,077	$	13,658

The table below sets forth selected gift card breakage and redemption information (in thousands) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Gift card breakage revenue (included in net sales)	$	338	$	189	$	1,673	$	582
Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period		1,430		1,673		3,708		4,200

Income Taxes

9 Months Ended

Oct. 28, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 3 – Income Taxes

Loss Per Share

9 Months Ended

Oct. 28, 2023

Earnings Per Share [Abstract]

Loss Per Share

Note 4 – Loss Per Share

Fair Value Measurements

9 Months Ended

Oct. 28, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 5 – Fair Value Measurements

Commitments and Contingencies

9 Months Ended

Oct. 28, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 6 – Commitments and Contingencies

Stock-Based Compensation

9 Months Ended

Oct. 28, 2023

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 7 – Stock-Based Compensation


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations)	$	277	$	295	$	891	$	1,460
Restricted stock units granted		—		50,000		374,440		409,800
Stock options granted		—		40,000		237,675		40,000

Share Repurchase Plan

9 Months Ended

Oct. 28, 2023

Treasury Stock Transactions [Abstract]

Share Repurchase Plan

Note 8 – Share Repurchase Plan


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Shares repurchased and retired		—		—		—		479,966
Share repurchase cost	$	—	$	—	$	—	$	6,253

Senior Credit Facility

9 Months Ended

Oct. 28, 2023

Debt Disclosure [Abstract]

Senior Credit Facility

Note 9 – Senior Credit Facility

Impairment

9 Months Ended

Oct. 28, 2023

Impairment [Abstract]

Impairment

Note 10 – Impairment

The table below sets forth impairment information (in thousands, except store counts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Impairment of leasehold improvements, fixtures and equipment at stores	$	268	$	154	$	595	$	382
Impairment of other long-lived assets(1)		48		65		947		65
Total impairment	$	316	$	219	$	1,542	$	447

Number of stores with leasehold improvements, fixtures and equipment impairment		4		2		6		4

(1)

Subsequent Event

9 Months Ended

Oct. 28, 2023

Subsequent Events [Abstract]

Subsequent Event

Note 11 – Subsequent Event

Subsequent to October 28, 2023, the Company repaid a net $27.0 million under the 2023 Credit Agreement.

Description of Business and Basis of Presentation (Policies)	9 Months Ended
	Oct. 28, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Nature of Business	Nature of Business — Kirkland’s, Inc. (the “Company”, “we”, “our” or “us”) is a specialty retailer of home décor and furnishings in the United States operating 339 stores in 35 states as of October 28, 2023, as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
Principles of consolidation	Principles of consolidation — The condensed consolidated financial statements of the Company include the accounts of Kirkland’s, Inc. and its wholly-owned subsidiaries, Kirkland’s Stores, Inc., Kirkland’s DC, Inc., and Kirkland’s Texas, LLC. Significant intercompany accounts and transactions have been eliminated.
Basis of presentation	Basis of presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and pursuant to the reporting and disclosure rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 4, 2023.
Fiscal year	Seasonality — The results of the Company’s operations for the 13-week and 39-week periods ended October 28, 2023 are not indicative of the results to be expected for any other interim period or for the entire fiscal year due to seasonality factors. Fiscal year — The Company’s fiscal year ends on the Saturday closest to January 31, resulting in years of either 52 or 53 weeks. Accordingly, fiscal 2023 represents the 53 weeks ending on February 3, 2024 and fiscal 2022 represents the 52 weeks ended on January 28, 2023
Use of estimates	Use of estimates — The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than those at fiscal year-end. Changes in estimates are recognized in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include, but are not limited to, impairment assessments on long-lived assets, inventory reserves, self-insurance reserves and deferred tax asset valuation allowances.

Revenue Recognition (Tables)

9 Months Ended

Oct. 28, 2023

Revenue from Contract with Customer [Abstract]

Schedule of Gift Card Liability, Breakage and Redemption Information

The table below sets forth selected gift card liability information (in thousands) for the periods indicated:


	October 28, 2023		January 28, 2023		October 29, 2022
Gift card liability, net of estimated breakage (included in accrued expenses)	$	11,448	$	14,077	$	13,658

The table below sets forth selected gift card breakage and redemption information (in thousands) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Gift card breakage revenue (included in net sales)	$	338	$	189	$	1,673	$	582
Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period		1,430		1,673		3,708		4,200

Stock-Based Compensation (Tables)

9 Months Ended

Oct. 28, 2023

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

The table below sets forth selected stock-based compensation information (in thousands, except share amounts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations)	$	277	$	295	$	891	$	1,460
Restricted stock units granted		—		50,000		374,440		409,800
Stock options granted		—		40,000		237,675		40,000

Share Repurchase Plan (Tables)

9 Months Ended

Oct. 28, 2023

Treasury Stock Transactions [Abstract]

Schedule of Share Repurchase Plan Information

The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Shares repurchased and retired		—		—		—		479,966
Share repurchase cost	$	—	$	—	$	—	$	6,253

Impairment (Tables)

9 Months Ended

Oct. 28, 2023

Impairment [Abstract]

Schedule of Impairment Information

The table below sets forth impairment information (in thousands, except store counts) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Impairment of leasehold improvements, fixtures and equipment at stores	$	268	$	154	$	595	$	382
Impairment of other long-lived assets(1)		48		65		947		65
Total impairment	$	316	$	219	$	1,542	$	447

Number of stores with leasehold improvements, fixtures and equipment impairment		4		2		6		4

(1)

Description of Business and Basis of Presentation - Additional Information (Details)	Oct. 28, 2023 Store State
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of home decor and gifts store \| Store	339
Number of states \| State	35

Revenue Recognition - Additional Information (Details) - USD ($)	Oct. 28, 2023	Jan. 28, 2023	Oct. 29, 2022
Revenue From Contract With Customer [Line Items]
Liability for sales returns	$ 1,400,000	$ 1,500,000	$ 1,600,000
Sales return reserve products recovery asset	609,000	705,000	745,000
Deferred e-commerce revenue	1,200,000	700,000	1,200,000
Contract assets in inventory	566,000	359,000	616,000
Customer Loyalty Program
Revenue From Contract With Customer [Line Items]
Deferred revenue	$ 1,200,000	$ 1,200,000	$ 1,200,000

Revenue Recognition - Schedule of Gift Card Liability, Breakage and Redemption Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022	Oct. 28, 2023	Oct. 29, 2022	Jan. 28, 2023
Revenue from Contract with Customer [Abstract]
Gift card liability, net of estimated breakage (included in accrued expenses)	$ 11,448	$ 13,658	$ 11,448	$ 13,658	$ 14,077
Gift card breakage revenue (included in net sales)	338	189	1,673	582
Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period	$ 1,430	$ 1,673	$ 3,708	$ 4,200

Income Taxes - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022	Oct. 28, 2023	Oct. 29, 2022
Income Tax Disclosure [Abstract]
Income tax expense	$ (1,290,000)	$ 57,000	$ 720,000	$ 355,000
Effective tax rate	(16.80%)	(0.80%)	(1.90%)	(0.90%)

Loss Per Share - Additional Information (Details) - shares	3 Months Ended		9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022	Oct. 28, 2023	Oct. 29, 2022
Earnings Per Share [Abstract]
Stock options and restricted stock units not included in the computation of diluted (loss) earnings per share (in shares)	695,000	531,000	696,000	597,000

Stock-Based Compensation - Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022	Oct. 28, 2023	Oct. 29, 2022
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 277	$ 295	$ 891	$ 1,460
Stock options granted	0	40,000	237,675	40,000
Restricted Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted	0	50,000	374,440	409,800

Stock-Based Compensation - Additional Information (Details)	Oct. 28, 2023 shares
Performance Shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Equity instruments other than options estimated to vest in period	0

Share Repurchase Plan - Additional Information (Details) - USD ($) $ in Millions	Oct. 28, 2023	Jan. 06, 2022
Treasury Stock Transactions [Abstract]
Share repurchase plan, authorized amount		$ 30.0
Share repurchase plan, remaining authorized amount	$ 26.3

Share Repurchase Plan - Schedule of Share Repurchase Plan Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 28, 2023	Oct. 29, 2022	Oct. 28, 2023	Oct. 29, 2022
Treasury Stock Transactions [Abstract]
Shares repurchased and retired	0	0	0	479,966
Share repurchase cost	$ 0	$ 0	$ 0	$ 6,253,000

Senior Credit Facility - Additional Information (Details) - USD ($) $ in Thousands		9 Months Ended
	Mar. 31, 2023	Oct. 28, 2023	Jan. 28, 2023	Oct. 29, 2022
Line of Credit Facility [Line Items]
Line of credit facility, interest rate description		Advances under the 2023 Credit Agreement bear interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus a margin ranging from 200 to 250 basis points with no SOFR floor. Upon the demonstration that the Company’s fixed charge coverage ratio is greater than 1.0 to 1.0 on a trailing twelve-month basis, the interest rate permanently decreases on the 2023 Credit Agreement to SOFR plus a margin of 150 to 200 basis points. Advances under the 2019 Credit Agreement bore interest at an annual rate equal to SOFR, or the London Interbank Offered Rate (“LIBOR”) through December 16, 2022, plus a margin ranging from 125 to 175 basis points with no SOFR or LIBOR floor. The fee paid to the lenders on the unused portion of the 2023 Credit Agreement is 25 basis points when usage is greater than 50% of the facility amount; otherwise, the fee on the unused portion is 37.5 basis points per annum. Under the 2019 Credit Agreement, the fee on the unused portion was 25 basis points per annum
Line Of Credit Facility Maximum Borrowing		10.00%
Revolving line of credit		$ 62,000	$ 15,000	$ 60,000
Maximum
Line of Credit Facility [Line Items]
Available borrowing capacity of line of credit facility		8,000
Revolving credit facility
Line of Credit Facility [Line Items]
Letters of credit outstanding, amount		$ 0
2019 Credit Agreement [Member] \| Revolving credit facility
Line of Credit Facility [Line Items]
Percentage of fee on unused portion of the facility	0.25%
2019 Credit Agreement [Member] \| Revolving credit facility \| Minimum
Line of Credit Facility [Line Items]
Interest at an annual rate equal to LIBOR plus a margin range	1.25%
2019 Credit Agreement [Member] \| Revolving credit facility \| Maximum
Line of Credit Facility [Line Items]
Interest at an annual rate equal to LIBOR plus a margin range	1.75%
2023 Credit Agreements [Member] \| Revolving credit facility
Line of Credit Facility [Line Items]
Percentage of fee on unused portion of the facility	0.25%	0.375%
2023 Credit Agreements [Member] \| Revolving credit facility \| Minimum
Line of Credit Facility [Line Items]
Interest at an annual rate equal to LIBOR plus a margin range	1.50%	2.00%
Fixed charge coverage ratio		100.00%
2023 Credit Agreements [Member] \| Revolving credit facility \| Maximum
Line of Credit Facility [Line Items]
Interest at an annual rate equal to LIBOR plus a margin range	2.00%	2.50%
Fixed charge coverage ratio		100.00%
Secured credit facility \| Revolving credit facility
Line of Credit Facility [Line Items]
Swingline availability	$ 10,000
Incremental accordion feature	25,000
Revolving line of credit		$ 62,000
Available borrowing capacity of line of credit facility		$ 27,200
Secured credit facility \| 2019 Credit Agreement [Member]
Line of Credit Facility [Line Items]
Line of credit facility maximum borrowing capacity	75,000
Secured credit facility \| 2023 Credit Agreements [Member] \| Revolving credit facility
Line of Credit Facility [Line Items]
Line of credit facility maximum borrowing capacity	$ 90,000

Impairment - Schedule of Impairment Information (Details)
$ in Thousands

3 Months Ended

9 Months Ended

Oct. 28, 2023

USD ($)

Store

Oct. 29, 2022

USD ($)

Store

Oct. 28, 2023

USD ($)

Store

Oct. 29, 2022

USD ($)

Store

Impairment [Abstract]

Impairment of leasehold improvements, fixtures and equipment at stores

$ 268

$ 154

$ 595

$ 382

Impairment of other long-lived assets

^[1]

947

Total impairment

$ 316

$ 219

$ 1,542

$ 447

Number of stores with leasehold improvements, fixtures and equipment impairment | Store

[1]	Other long-lived asset impairment includes the write-off of software costs, cloud computing implementation costs and fixtures related to the closing of two e-commerce distribution centers in fiscal 2023.

Subsequent Event - Additional Information (Details) - USD ($) $ in Thousands		9 Months Ended
	Oct. 29, 2023	Oct. 28, 2023	Oct. 29, 2022
Subsequent Event [Line Items]
Repayment of outstanding borrowings under credit agreement		$ 5,000	$ 0
Subsequent Event [Member]
Subsequent Event [Line Items]
Repayment of outstanding borrowings under credit agreement	$ 27,000